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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gaming stocks rise in August

1 September 2009

LAS VEGAS, Nevada –- Gaming stocks took an upward spin in August, and the trend had nothing to do with revenues or results.

Investors agreed that casino operators and slot machine makers had taken proper steps to control costs in light of the challenging economy.

Publicly traded gaming companies reported second-quarter earnings during August, with many operators such as MGM Mirage, Wynn Resorts Ltd. and Las Vegas Sands Corp. reporting either hefty losses or sizable profit declines.

Also, in August, the state said gaming revenues declined almost 14 percent in June, which included a nearly 15 percent drop on the Strip.

Still, the average daily stock prices of six of the seven casino operators and all three gambling equipment makers charted by Las Vegas-based Applied Analysis showed marked increases in August.

"Second-quarter earnings reports reflected heavy cost-control measures, hints of improved national economic stability emerged and debt maturity and covenant concerns were allayed for many," Applied Analysis principal Brian Gordon said in a report to clients.

A gaming industry index compiled by Applied Analysis jumped more than 39 points in August to about 278 and recorded its highest values since September 2008, a month before the financial meltdown.

"Cost-cutting measures were prevalent for nearly every major gaming operator as a strategy to mitigate sharp declines in top-line revenues," Gordon wrote. "Efficiency measures have been significant and targeted to offset the flow-through of reduced consumer spending, particularly as it relates to room pricing."

MGM Mirage told investors the company lost $212 million in the quarter, but also experienced some $600 million in annual cost savings. The casino operator's average daily stock price grew almost 30 percent in August when compared with July.

Las Vegas Sands and Wynn Resorts, which also reported less-than-impressive second-quarter earnings, saw their average daily share price each climb more than 47 percent in August compared with July.

Still, as a whole, the gaming sector is down more than 32 percent from August 2008. As a comparison, the stock markets as a whole are down more than 21 percent in the past 12 months.

The average daily share price of International Game Technology, Bally Technologies and WMS Industries rose between 18 percent and 25 percent during the month, due primarily to investor reaction from potential gaming expansion opportunities rising in several states.

Only Las Vegas-based Ameristar Casinos saw its average daily stock decline during August.

Meanwhile, several gaming companies took steps to avoid additional challenges to their balance sheets.

MGM Mirage announced an offer to exchange debt that would push some maturities from 2010 to 2016.

Las Vegas Sands and Wynn Resorts both announced plans to approach the Hong Kong Stock Exchange for initial public offerings, using shares of their Macau gaming holdings as collateral.